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MarketSurge powers the charts in this video.

Tech is under pressure again. QQQ made a lower high a few weeks ago and renewed its descent. SMH weekly chart might be working on a giant head-and-shoulders bearish pattern. Semis leaders are getting obliterated and they can’t even stage a brief bounce. The ones that bounce are getting faded.

The market expects a rate cut in September. It’s a given. The only question is 25 or 50bps and the outlook for further cuts that the Fed will provide. In the recent past, the anticipation of a rate cut was a tailwind for small caps, regional banks, biotech, and homebuilders. Not this time around. Only real-estate-related stocks showed some strength on Friday but nothing to write home about. The rips are getting faded there as well.

In the meantime, bonds of different durations are rallying. Long-term treasuries (TLT) are setting up for a potential breakout near their 52-week highs. Before 2022, they were the go-to safety play when the market would pull back or there was a recession threat. This narrative went upside-down during the rate hike cycle in 2022 and 2023. Things are back to normal as the market is expecting numerous rate cuts ahead and the economy has slowed down.

Corrective markets require a different state of mind to trade them profitably. Choppy price action is typical for a downtrend – upside gaps in the indexes are sold; downside gaps in the indexes are bought. Earnings upside gaps in individual stocks fade on day one or don’t lead to follow-through for more than a day or two. Downside earnings gaps continue lower.  You don’t have to be overly active in such an environment but if you have to – approach it tactically and be nimble as any gains can reverse quickly.

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MarketSurge powers the charts in this video.

The US Dollar and interest rates continue to decline as the market expects the Fed to begin a series of cuts in September. The best-performing groups for the last week also reflect those anticipations – homebuilders, regional banks, biotech, REITs, Bitcoin, and small caps in general. In the meantime, tech mega-caps are showing relative weakness. This doesn’t mean they are short candidates. It means there are better opportunities elsewhere.

I screened for stocks priced above $7 with an average daily volume of 500k shares that gained at least 10% last week. 84 stocks met the criteria. Number one was Redfin (RDFN) which provides real estate information. The list is quite diverse – highly-shorted solar stocks like NOVA; mortgage companies like RKT; biotech like TNGX, VKTX, and TERN; homebuilders like TOL BLDR, recent IPOs like TEM, earnings breakouts like CAVA and ZM, regional banks – DPST, etc. There is a lot to choose from.

I recently published a few children’s books. Check them out if you have kids or friends who have kids: Investing for babies, Trading for babies, Meditation for babies. You can find my other trading books on Amazon here.

Try my subscription service which includes a private X feed with option and stock ideas, emails with concise market commentary, real-time market education, the Momentum 40 list of market leaders, and much more. See what subscribers say about my educational service.

Check out my free weekly email to get an idea of the content I share with members. How my ideas/alerts did.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice. Read my full disclaimer here.

MarketSurge powers the charts in this video.

Last week, we talked about the likely possibility of a follow-through. It happened and was much stronger than even the biggest bulls have imagined. It seems that the quick 16% drop in the Nasdaq 100 and 42% decline in semiconductors ETF, SMH was strictly related to a Yen Carry Trade reversal, which blew up a few highly leveraged market participants and now things are back to normal.

I hinted that this might be just another garden-variety correction last week for two main reasons. First, there were plenty of favorable reactions to earnings during the drawdown. And second, an increasing number of stocks showed relative strength and were setting up. We had our bounce. I participated mainly through SOXL. Now, what’s next? New all-time highs or more elevated volatility ahead of the elections? Maybe, a little bit of both. I wouldn’t be surprised to see new all-time highs but also be prepared for big short-term shakeouts. The market hates uncertainty and those elections seem to have very even odds.

The market bounce was so quick that it caught many market participants unprepared. So many still live in the past believing that a big three-week drop will take many weeks to heal. Today’s tape is much faster, and the drops and the recoveries happen much quicker. What is the next most logical move in the market? Granted the indexes and many stocks are extended in the short term. Those on the sidelines are afraid to chase here and for a good reason- the risk to reward is not optimal. But everyone is waiting for a dip to enter. A dip that would form a higher low and give us a level to trade against.

If you are eager to short this bounce, I’d wait for a move below the previous day’s lows first, at the very least. I am open to any scenario but focused on the long side right now.

I recently published a few children’s books. Check them out if you have kids or friends who have kids: Investing for babies, Trading for babies, Meditation for babies. You can find my other trading books on Amazon here.

Try my subscription service which includes a private X feed with option and stock ideas, emails with concise market commentary, real-time market education, the Momentum 40 list of market leaders, and much more. See what subscribers say about my educational service.

Check out my free weekly email to get an idea of the content I share with members. How my ideas/alerts did.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice. Read my full disclaimer here.